How to Claim the Qualified Small Business Payroll Tax Credit for R&D

Many people have asked me, “How do you actually claim this new payroll tax credit?” We’ll, as usual, it all starts with an IRS form! Form 8974 – Qualified Small Business Payroll Tax Credit for Increasing Research Activities, was issued by the IRS to assist qualifying taxpayers in actually taking the credit against payroll (941, 941-SS or 944-PR) taxes. Here are the highlights:

  • You must file Form 8974 and attach it to Form 941 if you made an election on your income tax return to take a portion of the qualified small business payroll tax credit for increasing research activities against your payroll taxes
  • You can’t claim the credit unless you make the election on Form 6765 and file Form 8974 and attach it to Form 941
  • You can first claim the qualified small business payroll tax credit on Form 941 for the quarter that begins after the quarter in which you file your income tax return that makes the election on Form 6765
  • The Form 941 for that quarter is the Form 941 on which you are required to claim the qualified small business payroll tax credit for the amount elected as a research payroll tax credit on Form 6765 for the corresponding tax year
  • You can’t claim the credit related to this election on a different quarter’s Form 941 unless it is to take a carry-forward credit from the required quarter, as determined on Form 8974
  • Example – If you file your 2016 income tax return based on a calendar year, on March 15, 2017, the 2017 second quarter Form 941, which is filed by July 31, 2017, is the first quarter that you can take the qualified small business payroll tax credit for increasing research activities
  • If you file Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, or Form 944, Employer’s Annual Federal Tax Return, Form 8974 will be revised at the end of 2017 to provide instructions for you to claim the credit.